Apres Deutsche Bank, le deluge. Credit Suisse is considering a 3 billion-franc-plus ($3 billion) share sale, according to Bloomberg News. A chunky number, but somewhat more palatable for shareholders than the $8.6 billion the German lender is demanding.
You certainly couldn't argue with CEO Tidjane Thiam's timing. Markets are buoyant and European banks are benefiting from the rebound in economic growth, inflation and interest rate expectations in the region. Credit Suisse Group AG shares had rebounded by almost 50 percent since July.
This week's hiccup on the stock market is, for now, just a hiccup -- and with French and German elections due later this year, the next few weeks offer a window for share sales. Even after Deutsche Bank AG and UniCredit SpA's mammoth $14 billion rights offering, there's still likely to be demand for European bank stock.
But Thursday's 2 percent drop in the share price, while by no means disastrous, does tell you that investors had become almost complacent about the risk of a capital increase. It's also a reflection that Credit Suisse might, according to the report, ask for as much as 5 billion francs.
It's clear that fresh capital would benefit the bank's balance sheet. An extra 3 billion francs would lift Credit Suisse's common equity tier one capital ratio to about 12 percent by the end of 2018, according to Deutsche Bank analysts. That's up from 11.6 percent today and closer to the Swiss lender's target of 13 percent.
For Thiam, a stock sale would allow him to raise capital without having to resort to selling prized assets -- including a stake in the lender's lucrative domestic operation.
But asking for as much as 5 billion francs would require a more positive story to tell investors. CFO David Mathers said earlier this month that the bank wanted to invest in the business and take more risks to benefit from what he called "buoyant" U.S. market. JPMorgan Chase & Co. analysts reckon Credit Suisse is the European bank that could benefit the most from a pick-up in U.S. fixed-income trading. Deeper pockets would also help the bank's strategy of chasing ultra-rich clients in Asia.
It might also be useful to remind investors of the cautionary tale of Deutsche Bank itself. Germany's biggest lender was rocked by capital fears last year that cost it business and clients -- hence the bank is now trying to lift its capital ratio to 14 percent. That would open up a considerable distance between it and Credit Suisse, all else being equal.
The last thing Thiam needs is the threat of competitive pressure from Deutsche Bank or capital questions from clients. Investors should therefore be sympathetic, even if he decides to push for as much as 5 billion Swiss francs, an amount that would allow him to both put any capital concerns to bed and allow him to reinvest in the business.
As Brexit and Donald Trump jolt financial markets, there's still growth to capture. These are good reasons for Credit Suisse to raise capital now, and Thiam should find investors willing. But the most compelling reason of all might just be to keep the Deutsche Bank wolf from his door.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
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